Trustee’s sale activities and statutory time periods
To successfully complete a trustee’s foreclosure sale under a power-of-sale provision, the trustee and mortgage holder need to adhere to the procedures detailed in the California foreclosure statutes for handling a trustee’s sale. [Garfinkle v. Superior Court of Contra Costa County (1978) 21 C3d 268]
The nonjudicial foreclosure process has three stages:
- the notice of default (NOD) is recorded and mailed;
- the notice of trustee’s sale (NOTS) is recorded, posted and mailed; and
- the trustee’s sale of the real estate by auction occurs, followed by the execution of the trustee’s deed and distribution of sales proceeds.
Editor’s note — Mortgage servicers are required to wait until a mortgage is at least 120 days delinquent before commencing foreclosure on a first lien mortgage secured by an owner’s principal residence. [12 Code of Federal Regulations §1024.41(f)(1)]
While the trustee is concerned about the three stages for processing the foreclosure, the owner of the real estate and the mortgage holder are concerned primarily with two different periods of time which control payment of the debt:
- the reinstatement period, which runs from the recording of the NOD and ends prior to five business days before the trustee’s sale; and
- the redemption period, which also runs from the recording of the NOD but ends with the completion of the trustee’s sale of the secured property.
Reinstatement
A mortgage on which the trustee has recorded an NOD initiating foreclosure is reinstated when the mortgage holder receives:
- all amounts referenced as delinquent in the NOD, including principal, interest, taxes and insurance (collectively known as PITI), assessments and advances;
- installments that become due and remain unpaid after the recording of the NOD;
- any future advances made by the mortgage holder after the recording of the NOD to pay taxes, senior liens, assessments, insurance premiums and to eliminate any other impairment of the security; and
- costs and expenses incurred by the mortgage holder to enforce the trust deed, including statutorily limited trustees fee’s (or attorney fees). [ Civil Code §2924c(a)(1)]
After an NOD is recorded, an owner or junior lienholder may bring current any curable monetary default stated in the NOD prior to five business days before the trustee’s sale, called the reinstatement period. When the sale is postponed, the reinstatement period is extended, ending the day before the fifth business day prior to the postponed sale date. [CC §2924c(e)]
Until the trustee records an NOD, the mortgage holder is compelled to accept the tender of all delinquent amounts.
After recording the NOD, the trustee allows three months to pass before advertising and posting notice of the date of the trustee’s sale. [CC §2924]
To determine the last day for reinstatement of the mortgage debt, consider a trustee’s sale scheduled for a Friday. Count back five business days beginning with the first business day prior to the scheduled Friday sale. Since weekends are not business days, the fifth day counting backward from the scheduled trustee’s sale is the previous Friday (when no holidays exist).
Thus, the very last day to reinstate the mortgage is on Thursday, the day before the five business days and, in this example, eight calendar days before the trustee’s sale.
The mortgage holder’s failure to identify or include the dollar amount of all known defaults in the NOD does not invalidate the NOTS. Further, the mortgage holder may enforce payment of any omitted defaults by recording another, separate NOD. [CC §2924]
On reinstatement of the mortgage debt, the trustee rescinds the NOD, removing the recorded default from title to the property. [CC §2924c(a)(2)]
Any call due to a default is eliminated when the mortgage debt is reinstated. Upon reinstatement, the owner continues their ownership of the property as though the mortgage had never been in default.
A property owner’s ability to reinstate a mortgage by curing a default depends on the trust deed provision in default.
For example, an owner of real estate encumbered by a mortgage fails to pay property taxes. The mortgage holder records an NOD, specifying the delinquent property taxes as the owner’s default under the trust deed.
Is the property owner able to reinstate the mortgage and retain the property by eliminating the default?
Yes! The default is monetary, entitling the owner to reinstate the mortgage by simply paying the delinquent property taxes, and the trustee’s fees and charges incurred in the foreclosure proceeding. Monthly payments on the note, payment of insurance premiums and payments on senior encumbrances are also curable defaults allowing reinstatement of the mortgage debt.
Redemption
An owner’s failure to cure a default before the reinstatement period expires allows the mortgage holder to require the owner — who intends to retain ownership of the property — to redeem the property prior to completion of the trustee’s sale by:
- paying all sums due on the mortgage debt; and
- reimbursing the costs of foreclosure.
The owner’s right of redemption runs until the trustee completes the bidding and announces the property has been sold. Any owner, junior lienholder, or other person with an interest in the property (such as a tenant with a leasehold estate) may satisfy the debt and redeem the property prior to the completion of the trustee’s sale. [CC §2903]
To redeem the property, the owner or junior lienholder is required to pay:
- the principal and all interest charges accrued on the principal;
- permissible penalties;
- foreclosure costs; and
- any future advances made by the foreclosing mortgage holder to protect its security interest in the property.
Unless all unpaid amounts due on the mortgage debt are paid in full during the redemption period, the owner loses ownership of the property at the trustee’s foreclosure sale.
Some mortgage defaults do not allow the debt to be reinstated. Reinstatement of the mortgage on those defaults is only available when agreed to by the mortgage holder. Defaults triggering a call and requiring redemption of the property by a payoff of the entire debt without the ability to reinstate the mortgage include:
- a breach of a due-on clause;
- a breach of a waste provision; or
- a violation of law provision in the use of the property.
Consider real estate encumbered by a trust deed with a waste provision requiring the owner to maintain their property in good condition and repair. The owner fails to maintain the property, and the roof needs replacement.
The mortgage holder becomes concerned as the owner’s activities have decreased the value of the mortgage holder’s security, called impairment. Due to the owner’s failure to maintain the property in good condition, the mortgage holder calls the mortgage. On the owner’s failure to fully pay the remaining debt, a trustee on instructions from the mortgage holder records an NOD against the property.
In this instance, the owner may not cure the default in the trust deed (waste provision) by tendering less than the entire remaining balance of the debt. Thus, the owner is unable to reinstate the mortgage. As a result, the entire foreclosure period becomes the redemption period.
To retain ownership of the property, the owner needs to redeem the property by tendering full payment of all sums due, including foreclosure costs, prior to completion of the trustee’s sale.
Alternatively, the trust deed gives the mortgage holder the authority to cure the waste and add the costs incurred to the principal balance of the note under the future advances clause.
However, when waste by the owner is committed in bad faith, the foreclosing mortgage holder needs to consider an underbid at the trustee’s sale. The underbid will be in an amount equal to the property’s reduced fair market value attributable to the waste. With an underbid, the mortgage holder may sue the owner to recover the deficiency in the property’s value below the amount due on the debt when the bad faith waste caused the deficiency. [Cornelison v. Kornbluth (1975) 15 C3d 590]
